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On equilibrium payoffs in wage bargaining with discount rates varying in time

Author

Listed:
  • Agnieszka Rusinowska

    (Université Paris I Panthéon-Sorbonne)

  • Ahmet Ozkardas

    (Turgut Ozal University
    Université Paris I Panthéon-Sorbonne)

Abstract

We provide an equilibrium analysis of a wage bargaining model between a union and a firm in which the union must choose between strike and holdout in case of a disagreement. While in the literature it is assumed that the parties of wage bargaining have constant discount factors, in our model, preferences of the union and the firm are expressed by sequences of discount rates varying in time. First, we describe necessary conditions under arbitrary sequences of discount rates for the supremum of the union’s payoffs and the infimum of the firm’s payoffs under subgame perfect equilibrium in all periods when the given party makes an offer. Then, we determine the equilibrium payoffs for particular cases of sequences of discount rates varying in time. Besides deriving the exact bounds of equilibrium payoffs, we also characterize the equilibrium strategy profiles that support these extreme payoffs.

Suggested Citation

  • Agnieszka Rusinowska & Ahmet Ozkardas, 2015. "On equilibrium payoffs in wage bargaining with discount rates varying in time," Economic Theory Bulletin, Springer;Society for the Advancement of Economic Theory (SAET), vol. 3(2), pages 181-199, October.
    • Handle: RePEc:spr:etbull:v:3:y:2015:i:2:d:10.1007_s40505-014-0041-9
    DOI: 10.1007/s40505-014-0041-9
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    References listed on IDEAS

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    1. Rubinstein, Ariel, 1982. "Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 50(1), pages 97-109, January.
    2. Begoña Garcia Mariñoso & Izabela Jelovac & Pau Olivella, 2011. "External referencing and pharmaceutical price negotiation," Health Economics, John Wiley & Sons, Ltd., vol. 20(6), pages 737-756, June.
    3. Muthoo,Abhinay, 1999. "Bargaining Theory with Applications," Cambridge Books, Cambridge University Press, number 9780521576475, September.
    4. Izabela Jelovac, 2015. "On the relationship between the negotiated prices of pharmaceuticals and the patients' co-payment," Economics Bulletin, AccessEcon, vol. 35(1), pages 481-493.
    5. repec:dau:papers:123456789/5987 is not listed on IDEAS
    6. Bolt, Wilko, 1995. "Striking for a Bargain between Two Completely Informed Agents: Comment," American Economic Review, American Economic Association, vol. 85(5), pages 1344-1347, December.
    7. Holden Steinar, 1994. "Bargaining and Commitment in a Permanent Relationship," Games and Economic Behavior, Elsevier, vol. 7(2), pages 169-176, September.
    8. Ahmet Ozkardas & Agnieszka Rusinowska, 2014. "Wage bargaining with discount rates varying in time under different strike decisions," Post-Print hal-00975533, HAL.
    9. Fernandez, Raquel & Glazer, Jacob, 1991. "Striking for a Bargain between Two Completely Informed Agents," American Economic Review, American Economic Association, vol. 81(1), pages 240-252, March.
    10. Shaked, Avner & Sutton, John, 1984. "Involuntary Unemployment as a Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 52(6), pages 1351-1364, November.
    11. Harold Houba & Quan Wen, 2008. "On striking for a bargain between two completely informed agents," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 37(3), pages 509-519, December.
    12. Haller, Hans & Holden, Steinar, 1990. "A letter to the editor on wage bargaining," Journal of Economic Theory, Elsevier, vol. 52(1), pages 232-236, October.
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    Cited by:

    1. Agnieszka Rusinowska & Ahmet Ozkardas, 2015. "Inefficient equilibria in wage bargaining with discount rates varying in time," Economics Bulletin, AccessEcon, vol. 35(3), pages 1744-1751.
    2. Ahmet Ozkardas & Agnieszka Rusinowska, 2014. "Inefficient equilibria and lockouts in wage bargaining with discount rates varying in time," Post-Print halshs-01113240, HAL.
    3. Ahmet Ozkardas & Agnieszka Rusinowska, 2014. "Holdout threats of the union during wage bargaining," Documents de travail du Centre d'Economie de la Sorbonne 14072, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    4. repec:hal:pseose:hal-01241273 is not listed on IDEAS

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    More about this item

    Keywords

    Union–firm bargaining; Varying discount rates; Subgame perfect equilibrium; Equilibrium payoffs;
    All these keywords.

    JEL classification:

    • J52 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Dispute Resolution: Strikes, Arbitration, and Mediation
    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory

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